De-coupling of economic growth from development in energy demand

The FINANCIAL -- In 1990, Georgia's GDP/capita, 7900 USD, was almost equal to that of Azerbaijan, 8400 USD, while Georgia's energy consumption/capita, 2.6 toe (tons of oil equivalent) was closer to that of Poland, 2.7 toe. Five years later, in 1995 when the Soviet Union had collapsed and the Berlin Wall had come down, Georgia's energy use per capita and GPD/capita had fallen far behind that of Azerbaijan and Poland and in fact resembled more that of China: 2300 USD vs 2500 USD and 0.8 toe vs 0.9 toe.

Georgia's GDP/capita reached the bottom in 1995 (71% lower than in 1990) while the energy use/capita bottomed out in 2000 (75% lower than in 1990). Despite making big increases, +214 pct. on GDP and +50 pct. on energy use between 2000 and 2014, Georgia remains at the low end on both accounts.

In 2014, the average Georgian used 1/5 of the amount of energy that the average Russian used, and 1/4 of the average German. In 2014, the GDP per head in Georgia was 1/3 of that of the average Russian, and 1/6 of the figure for the average German.

At comparative levels of GDP per head, Russia is using about twice as much energy as Poland, whereas Poland is using 50-60 percent more energy than Azerbaijan.

According to Angus Maddison, the authoritative economic historian (1926-2010), gross global product rose 19-fold (at purchasing power parity, or common international prices) between 1900 and 2001. Over the same period consumption of all commercial energy increased 18-fold. However, the closeness of the correlation is changing. Between 1975 and 2001, however, global gross product rose by 120 per cent while consumption of commercial energy rose only 60 per cent.

As seen in the figure, Germany, Poland and Azerbaijan are examples of countries that between 1995 and 2014 have achieved to increase their economy without increasing the energy demand per capita, e.g. economic growth has been de-coupled from energy demand growth.

In general, a majority* of OECD countries have reached the point of ‘de-coupling’. Some analysts tend to say: “Yes but that is because these countries have outsourced their heavy industries to the World #1 workshop, China”. There seems to be some truth in fact.

The strength of the de-coupling, or the elasticity, varies: In Germany, the energy use/capita decreased by 4/10 of a percent every time the GDP/capita increased by 1 percent from 2000 to 2014. For Poland, the elasticity was -1/10, as was also the case for Azerbaijan.

It is perhaps interesting to notice that Azerbaijan’s impressive economic growth (nearly +15% y-on-y, between 2005 and 2010) slowed down even before the collapse in oil prices in late 2014 (only +1.2 y-o-y, between 2010 and 2014). This seems to indicate that Azerbaijan’s economy needs to be diversified.

Non-OECD countries, whether big economies like China, medium-sized like Russia or small GDPs like Georgia, have not reached the de-coupling point – yet. This has implications for the global consumption of energy and hence the related greenhouse gas emissions, especially by countries where this de-coupling has not yet materialized and where fossil fuels are dominating the fuel mix.

In Georgia, Russia and China, energy demand/capita still increases when there is economic growth. Between 2000 and 2014, a one percent growth in Russia’s GDP translated into a 1/5 percent growth in energy demand, and the same for Georgia. In China, one percent growth in GDP translated into a 1/2 percent growth in energy demand.

*) Turkey is one of the few OECD countries without ‘de-coupling: One percent of economic growth translated +0.8 percent growth in energy demand. These differences are mainly related to differences in energy intensity among countries and in particular their industrial sectors. The Financial will deal with the topic of ‘energy intensity’ in a subsequent article.

Facts about IEA:

The International Energy Agency (IEA), based in Paris, has just added data from 2014 to its huge data base with data on energy production, energy supply and energy consumption for all its 29 member countries and more than 100 non-member countries. Just over half of the world’s energy consumption now takes place outside the IEA region. Collectively, non-IEA countries will account for almost all growth in energy demand up to 2030.